25 June 2017
One of the big retail industry news stories recently was the launch of Lidl into the US grocery market. Starting modestly with 20 locations across 3 eastern states, the German discounter is anticipated to have over 100 stores open in the US by next summer. With Aldi also planning to open another 900 stores in the US, we predict that over the next few years, the Discounters will rapidly grow market share from 4% to 10% - becoming a threat too big to ignore.
With potentially tough times ahead for mainstream grocers in North America, “know thy enemy” is a good starting point for your fight back strategy. Don’t be caught out thinking discounters like Lidl and Aldi still operate on the simple principle of “pile ‘em high and sell ‘em cheap”. They’ve developed sophisticated marketing and merchandising strategies as our top 9 Lidl myth-busters below demonstrate. It’s time to sit up and take notice of the competition!
Top 9 myths about Lidl
1. Lidl is a one trick pony that just offers cheap products. There is no doubt about it they offer truly amazing value (fresh pineapples at 89c anyone?) but in fact customers’ motivations and loyalty drivers to Lidl go way beyond just price. Through surveys for our CCI study, customers who shop at Lidl repeatedly highlighted convenience and speed, product quality, excitement by being thrifty, discovery of new deals and finding special buys as reasons why they choose to shop there.
2. Lidl only appeals to less well-off and the most price sensitive customers. In most markets where they operate, they’ve deliberately structured their advertising campaigns to appeal to a wide range of customers, and in fact, their biggest impact is ‘poaching’ mid-market customers, as well as some very affluent customers, away from traditional supermarkets. In many parts of Europe, and especially Germany, Lidl is frequented by all types of shoppers, with their car parks famously full of BMWs and Mercedes
3. The shopping experience is very basic and the in-store environment is unattractive. Lidl’s customer experience is simple and offers few ‘frills’ but “discounters” is an outdated and unfair term. Look around a new Lidl and you'll experience a modern, convenient supermarket offering amazing value, with in-store bakery, abundant displays of fresh produce, and wider aisles. The new stores just opened in the US are in fact 40% larger than most of those seen in Europe.
4. Lidl is great for replenishing on basic groceries only. Over 60% of a Lidl impact on a competitor comes from a decrease in visits from their customers topping up for basic groceries. But it doesn’t stop there - actually their killer categories are areas such as Wine and Fresh Produce - plus they have invested heavily in expanding their health & beauty, and organic product ranges, award winning cheeses, and Italian specialities. Bit by bit this soon expands to a fuller shop each visit.
5. Lidl’s range is too limited. In a typically clever fashion, Lidl has managed to turn a potential negative into a positive by being self-proclaimed “product curators” – only choosing the best quality and best value products for the customer, rather than offering “endless versions of products you don’t want”. This will obviously appeal to some customer segments who are looking for ease and convenience over choice. Particularly at key seasonal times, Lidl do offer a surprisingly wide variety - wagyu beef and lobster are two product examples. In addition, their general merchandise special buys that run every week, drive new excitement and breadth of offer in customers’ minds with examples on display in the US this week such as pressure washers, barbecues and men’s watches.
6. Lidl are not customer focussed. In fact they are customer obsessed, and do everything to keep their offer very simple so the customer will benefit. They try to avoid complication at all costs so customers get the best value.
7. Lidl are not multi-channel. Both Lidl and Aldi have started selling general merchandise goods online in some markets and don’t be surprised if they start looking at grocery Click & Collect services. In the UK, they also operate “My Lidl” – an online community for customers to share reviews and earn benefits for their levels of engagement with the brand online.
8. The quality of their products is not great. This may once have been true, but in recent years they have made huge strides in improving the quality and value of their private label to compete with mainstream supermarkets. Lidl benchmarks brand leaders and many retailers mistakenly think their "entry price" "value tier" private label is comparable.
9. Lidl mainly stock German products. Again, this may have been the case some years ago, but they always source locally and quickly establish themselves as local market champions. A walk around the new stores in the US was no different, where 85% of their products have been sourced from this market.
So my message to traditional grocers is underestimate the appeal of Lidl and Aldi at your peril. Be ready for their arrival by ensuring you have a deep customer understanding of their strengths and weaknesses, and focus on a strong, localised response.